PARIS (MNI) – If Ireland’s troubled lender Anglo-Irish were to
fail, it could cause the financial collapse of the whole country, Irish
Finance Minister Brian Lenihan warned in an interview published late
Wednesday on the Financial Times website.

“Any Anglo failure would bring down the sovereign,” Lenihan told
the business daily. “It is systemically important not because of any
intrinsic merit in the bank, but because of its size relative to the
national balance sheet. No country could contemplate the failure of such
an institution.”

Irish authorities are preparing to unveil on Thursday a fresh
injection of capital for Anglo-Irish reported to be around E5 billion.
That would bring the total cost of bailing out the bank so far to around
E30 billion. After it became clear that Anglo-Irish was insolvent, it
was taken over by the state, which now owns it.

Financial markets are increasingly on edge about Ireland’s banking
crisis and the cost to the government of resolving it at a time when it
is also trying to rein in its bulging public deficit.

The FT reported that Lenihan will also soon announce a separate
injection of E2 to E3 billion for a different banking company, Allied
Irish Banks, which may be coming under pressure in the markets. The bank
holding company is under a regulator-imposed deadline to raise E7.4
billion by year’s end.

Irish sovereign debt has been hammered in recent weeks, with
spreads on the government’s 10-year bonds hitting new highs against
benchmark German Bunds on an almost daily basis. That has raised
Ireland’s cost of borrowing in capital markets to a very uncomfortable
level.

The FT said that as part of the new bailout plan for Anglo-Irish,
Lenihan will authorise the remaining E25.9 billion of non-performing
property loans on its books to be transferred straight away to the
National Asset Management Agency, which was established to hold toxic
assets in Ireland’s banking crisis.

Lenihan said Thursday’s announcement by Irish authorities would
also include details on what the government plans to do with Anglo-Irish
creditors. With opposition parties insisting that the government force
creditors to share some of the losses, Lenihan reiterated that the
government would fully reimburse senior bond holders, but that the fate
of subordinated bondholders “will be addressed” on Thursday.

Meanwhile, Standard & Poor’s on Wednesday downgraded Anglo Irish’s
subordinated debt by three notches to triple C, warning there was a risk
the bonds would be restructured. Moody’s earlier in the week downgraded
not only the bank’s subordinated bonds but also its senior bonds.

The FT said Lenihan sought to emphasize that Ireland was in better
shape financially than other peripheral EMU states, and noted that it
had enough cash on hand to service its debts through mid-2011, in
addition to a E24 billion sovereign wealth fund and a “cash pile” of
over E20 billion.

“We are not obliged to go to the markets. We are not under a clear
and present constraint,” he was quoted as saying.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

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